Legal Review Before the Bid

The Low-Down

When a board is facing an alteration or capital improvement, the typical process is to engage an architect or an engineer to prepare specifications. Usually, those specifications include insurance requirements and other contract provisions. That document goes to the managing agent and the board, but they may not even review it before they send it out to bid. After the bids come in, the contractor, or sometimes the engineer or architect, prepares the contract, and then I’m called. This is a very typical process. Unfortunately, in my view, the board has waited too long to involve its counsel.

The Weigh-In

Most specifications include some form of insurance requirements, but they may not have been reviewed in advance by the clients or the managing agent. Sometimes they’re woefully low in terms of limits, or they don’t include the proper coverages.

What that means is that the contractor is bidding on insurance at a certain level, and when it gets to our review, we advise our clients that the insurance is not sufficient. Then the client has to go back to the contractor with a new set of insurance requirements. In one situation, the contractor raised its bid by $85,000 because its insurance bid was based on the lower limits contained in the specifications. In that situation, we would have advised the client to have us review the insurance requirements in advance with the building’s insurance carrier and the architect or engineer so that acceptable insurance requirements were included in the specifications.

In addition, when we get to the contract phase, we want to include a very strong indemnification provision in favor of the co-op or condo so that if there are any negligence claims, damage claims, or other issues relating to the work, the co-op or condo is fully covered. We find that negotiating those clauses after the bidding process often leads to a very protracted contract negotiation.

The Outcome

In one particular case that we dealt with, the condo board did not include any of its insurance or indemnification provisions in the specification documents. That led to a very bad outcome. The contractor increased its bid once it saw the actual insurance requirements. We spent more than a month negotiating the contract, which delayed the work. Ultimately, we did not go forward with that contractor. We had to re-bid the job and start all over again.

The Take-Away

When sending out bids and negotiating contracts for capital improvements, boards tend to come to their attorneys late in the process. The lesson is to involve your attorney earlier. I’m very aware that boards are cost-conscious and don’t like to use their attorneys unless they need to, but in my view, they need to be involved before the specifications are made final, and not after the fact. That way, insurance, indemnification, and other contract issues are dealt with in the bidding process.